11 November 2014
Rates & FX Market Update
Highlights
¨ Overnight
market movements remained volatile with DM currencies retreating lower on the
USD’s strength, led by EURUSD where it fell substantially to 1.242. UST yields added 3-6bps, with the 2y yield
closing higher at 0.535% following
weaker demand for the 3y note auction at 0.998% (BTC of 3.18x vs avg of
3.33x), although demand from indirect bidders remained strong at 37.7% (Avg:
32.5%), signaling a gradual move to US assets. Gilts closed marginally lower,
erasing earlier gains with the 10y yield dropping to as low as 2.16% ahead of
BoE’s inflation report due on Wednesday where we opine GBP traders will
position cautiously ahead of the release. In Australia, the resilient USD
overshadowed the positive spillover effects from a rebound in key commodity prices,
sending the AUD lower to 0.8620; belly to long dated ACGBs outperformed with
the curve bull flattening.
¨ KRW gained
firmer footing ahead of BoK meeting on easing expectations for a third
consecutive BoK rate cut this month following Finance Minister’s Choi’s urge
for BoK to re-assess the impact of the 2 previous rate cut before treading
further; yields on KTBs edged higher. In China, CPI remained subdued while the
persistent fall in PPI continue to reflect the excess capacity in China, adding
to the case for easing measures to achieve the government’s short term growth
targets. Yields on 10y CGB fell 18bps overnight, buoyed by strong easing
speculations while CNY and CNH gained modestly, tracking the PBoC Yuan fixing
rate. Meanwhile, MYR rebounded higher to 3.331/USD on renewed buying interest
given the strong rebound in commodity prices.
¨ EURUSD extended
its bearish run declining 0.4% and touching a session low of 1.2411 largely due
to the resurgence in the greenback. The bearish momentum is likely to extend in
the near term given the recent downward revision of the region’s forecast by
the EC which could pressure the single bloc currency lower towards its near
term support of 1.2365 while technicals point to a potential break to its
strong 1.222 support level
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